At least 100 Taliban militants have been killed in fighting around four military checkpoints in southern Afghanistan, local officials say.
Five days of clashes in Sangin district in Helmand province left 35 civilians and at least 21 Afghan troops dead.
Tribal elders in the area say over 2,000 families have been displaced.
Three US marines died just last week in an explosion in Helmand. Last month, British troops left their last outpost, withdrawing to the Camp Bastion base.
Sangin district in northern Helmand is regarded as a strategic area as drug dealers and Taliban insurgents have been active in the area, and they often work together, reports the BBC's Bilal Sarwary in Kabul. The district lies on the border with Pakistan.
There is no independent confirmation of the number of dead. The militants said on Tuesday that only two of their fighters had been killed and that more than 40 soldiers had died.
The Afghan military does not have its own air force and President Karzai has banned it from asking for Nato air power to be used in populated areas, our correspondent notes.
Analysis: Bilal Sarwary, BBC News, Kabul
With no air support available, the fighting in Sangin is a litmus test for Afghan forces as Nato pulls out.
Insecurity has spread in Helmand since British and American forces pulled out of many districts and withdrew to small outposts. Many of the roads connecting the capital, Lashkar Gah, to outlying districts have been a no-go area for government officials, and roadside bombs have prevented ground reinforcements.
Afghan intelligence officials in the area say the insurgents launched the attack so that drug dealers could smuggle opium and heroin from the district towards the Iranian border. During my two visits earlier this year, local officials dubbed Helmand Afghanistan's Falluja, referring to the Iraqi city under Sunni extremist control.
But it is the civilians who continue to bear the brunt of this conflict. More than 2,000 families have been forced to flee their homes and farms in Helmand.
The Afghan government has sent additional troops to the area to support the military response, officials say.
"There was a major attack by the Taliban. We are reinforcing Afghan national security forces and have suffered no major loss of territory," interior ministry spokesman Siddiq Siddiqi told the AFP news agency.
Estimates by local Afghan officials of the total number of Taliban attackers vary from 800 to more than 1,000. Reports said heavily armed militants struck in a co-ordinated attack.
A local official in Helmand told the BBC that at one checkpoint police had fought hard - but with no reinforcements available immediately, the Taliban overran it.
Fighting has now extended from Sangin district into the neighbouring areas of Kajaki, Musa Qala and Nowzad.
"At least 21 Afghan forces have been killed and more than 40 wounded during five days of clashes in four districts," Said Omar Zwak, the spokesperson for the Helmand governor told the BBC.
Off the record officials say the insurgents have killed 35 Afghan soldiers and nearly twice that number of police.
Some of those civilians who fled the fighting walked long distances to the provincial capital, Lashkar Gah.
Displaced people are reported to be sleeping in the open, amidst reports of a shortage of food and water in the city.
A tribal elder in Sangin told the BBC's Mamoon Durrani in Kandahar that locals faced fuel shortages and that prices had risen tenfold.
"If the government can't do anything, then they have to give us weapons to defend our villages and families," Haji Akhtar Mohammad said.
Last week three US marines and a military dog were killed in an improvised explosive device attack in the Nad Ali district of Helmand.
In a matter of months UK forces will withdraw from Helmand completely, closing their main base at Camp Bastion.